04.06.2019

Consolidation

Who need to prepare consolidated annual financial statements, and who are exempt in Hungary?

Consolidation

Most accountants finish their accounting duties related to the previous financial year after publishing and filing the simplified annual financial statements, or the annual financial statements as well as the decision on the appropriation of the after-tax profit, and in the event of a mandatory audit with the auditor’s report. Yet there are others in the profession in Hungary who still have a major and complex task to complete: consolidation.

Who is affected by consolidation?

Consolidated annual financial statements must be prepared by the parent company. The parent company involves its subsidiaries and jointly-controlled companies in the consolidation process. There are relief rules of course, which can exempt parent companies from their obligation to consolidate.

A Hungarian parent company does not need to prepare consolidated annual financial statements on a given financial year if two of the following three indicators fall short of the thresholds on the reporting dates of the preceding two financial years:

  • total assets: HUF 6 billion (roughly EUR 18.4 million),
  • annual net sales revenue: HUF 12 billion (roughly EUR 36.8 million),
  • average headcount in the financial year: 250 people

The question does arise as to how the parent company can know this information if it has not yet prepared its consolidated annual financial statements? The answer is simple. The aggregate figures of the parent company, the subsidiaries and jointly-controlled companies must be compared to the thresholds. The consolidation takes place by adding the parent company’s data to that of the subsidiaries, while the data of any jointly-controlled companies is also added proportionate to the given equity shares; this is all “raw” data, prior to the consolidation.

Exemption from consolidation due to size is not applicable in cases where the parent company is a bank, insurance company or financial enterprise, or if exchange trading of the shares or partnership shares of, or securities issued by, the parent company or its subsidiary is authorised, or such authorisation has already been applied for.

Who may (also) be exempted from consolidation?

If certain conditions are met, Hungarian parent companies obliged to prepare consolidated annual financial statements based on their size can also be given exemption.

Subsidiaries of companies based in any country of the European Economic Area (where such subsidiaries are also parent companies of their own subsidiaries and jointly-controlled companies), i.e. “exempt parent companies” can be exempted from their obligation to prepare consolidated annual financial statements if the superior parent company prepares and publishes its own consolidated annual financial statements and business report – in accordance with relevant EU directives and EU regulations – in which the exempt parent company and its subsidiaries are also included.

The exemption from consolidation must be presented in the supplementary notes of the individual annual financial statements of the exempt parent company, and further data must be presented on both the superior parent company and the exempt parent company’s subsidiaries.

Difference between the two types of exemption

It is important, however, that while a parent company has no further administrative duties following its exemption based on the size thresholds, a parent company that is exempted from preparing consolidated annual financial statements because it qualifies as an exempt parent company still has a filing obligation in Hungary.

Since they do not prepare consolidated annual financial statements of their own, they have to file the consolidated annual financial statements and the consolidated business report of the superior foreign parent company, including the auditor’s report, in Hungarian. This must take place within 60 days of the approval of the consolidated annual financial statements of the superior foreign parent company.

Preparing consolidated annual financial statements is a very time-consuming and resource-intensive task for the finance department of a corporation. It is important to note, however, that consolidated annual financial statements do not always have to be prepared, exemptions can be provided for certain parent companies on various grounds. To decide whether your group of companies is subject to consolidation, or whether you are eligible for exemption, please do not hesitate to contact our financial advisory experts.

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